Green v Brown - [2002] NSWIRComm 177 - NSWIRComm 1998 case summary — Zoe

NSWNSWIRComm

Green v Brown

[2002] NSWIRComm 177

Industrial Relations Commission (NSW)|1998-05-20|Before: Wright J, Walton J, Boland J, Studdert J, McLelland CJ

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At a glance

Source facts

Court

Industrial Relations Commission (NSW)

Decision date

1998-05-20

Before

Wright J, Walton J, Boland J, Studdert J, McLelland CJ

Catchwords

04/11/2001 DATE OF JUDGMENT: 08/02/2002

Source

Original judgment source is linked above.

Catchwords

04/11/2001 DATE OF JUDGMENT: 08/02/2002

Judgment (148 paragraphs)

[1]

Background to the appeal 3 It is appropriate at the outset to summarise the facts that, as it will become apparent, gave rise to a "labyrinth of litigation" extending over some eight years, from 1994 to the present. Schmidt J set out the basic facts at pars 8-16 of her principal judgment of 7 June 2000. These included the facts that:

[2]

· Ms Brown was employed by Image in late 1987, with responsibilities that included the development of a new clothing range, 'Howard Showers'; · 'Howard Showers' was launched in 1988, and Ms Brown was the principal designer for the label for 5 years; · The 'Howard Showers' label was very successful, with sales growing to $14 million per year by 1994; · In 1992, Ms Brown and Mr Green agreed to establish a 'Howard Showers' retail venture, and opened a shop in the Queen Victoria Building in Sydney; · Ms Brown and Mr Green entered into a partnership agreement in March 1993, which was later altered to substitute Charlie Brown Pty Ltd and Ecroblack Pty Ltd (Mr Green's company) as the parties; · Ms Brown and Mr Green had a falling out in 1994, and Ms Brown left Image in June. Ms Brown then immediately resumed working for Image on the basis of a consultancy agreement, which included a one month evaluation period; · On 25 July 1994, Mr Green terminated Ms Brown's employment under the consultancy agreement without notice; · On 27 September 1994, Ecroblack served a notice terminating the partnership. 4 Late in 1994, Ms Brown and Charlie Brown commenced proceedings in the Equity Division of the Supreme Court (matter number 4074 of 1994). The respondents in those proceedings are the appellants in the present proceedings. The relief claimed in the amended statement of claim was: (i) A Declaration that the First, Second or Third Defendants or each of them have engaged in misleading and deceptive conduct in contravention of s42 of the Fair Trading Act, NSW or s52 of the Trade Practices Act, 1974 Cth. (ii) A declaration that the Second Defendant's notice of 27 September, 1994 is ineffective to dissolve the said partnership. (iii) A Declaration that on a true construction of the partnership deed that the provisions of clause 13 of the said partnership deed in relation to retirement of partners applies to the purported dissolution of partnership by the Second Defendant. (iiiA) Alternatively to (iii) an order pursuant to s87 of the Trade Practices Act and s72 of the Fair Trading Act varying the partnership agreement to provide that the provisions of clause 13 of the partnership agreement apply on either party wishing to dissolve or otherwise terminate the partnership. (iiiB) An order that the Second Defendant serve a notice on the First Plaintiff in accordance with the provisions of Clause 13 of the partnership agreement. (iv) Damages, including expectation damages. (v) An account of profits of the partnership. (vA) Equitable Compensation. (vi) Such further or other relief under s72 of the Fair Trading Act or s87 of the Trade Practices Act as the Court may in the premises deem fit. (vii) Damages under s68 of the Fair Trading Act or s82 of the Trade Practices Act. (viii) Further or other Orders. (ix) Interest. (x) Costs. 5 Ecroblack also sought relief in the Equity Division of the Supreme Court (in matter number 4136 of 1994) as follows: 1. A DECLARATION that the partnership between the Plaintiff and the defendant carrying on the business of the retail sale of the designer label 'Howard Showers' clothing ('the Partnership') was dissolved on 27 September 1994. 2. In the alternative, an ORDER (pursuant to section 35 of the Partnership Act 1892) that the Partnership be dissolved. 3. A DECLARATION that clause 13 of the Deed of Partnership dated 22 March 1993 between the Plaintiff and the Defendant has no application to such dissolution. 4. An ORDER that the business of the Partnership be wound up under the direction of this Court. 6 McLelland CJ in Eq delivered judgment on 26 June 1995 (unreported, Charlie Brown Pty Limited & Anor v Green & Ors and Ecroblack Pty Limited v Charlie Brown Pty Limited) and made consequential orders on 3 July 1995. Pursuant to Pt 31, r2 of the Supreme Court Rules 1970, his Honour had set down for decision the "preliminary" question of whether Charlie Brown was entitled to any of the relief claimed in sub-paragraphs (i) - (iiiB) of paragraph 25 in its amended statement of claim.

[6]

11 The relief sought in the amended summons was as follows: 1. An order declaring wholly or partly void, or varying, either from their commencement or from some other time, the contracts or arrangements under which the first applicant ('Charlotte Brown') performed work and all related conditions and collateral arrangements and in particular: a. the consultancy agreement between: i. Charlotte Brown, and ii. the second respondent ('Image Clothing'), pursuant to which Charlotte Brown was retained to design and develop for sale and distribution clothing manufactured by Image Clothing, ('the consultancy agreement'); b. the deed of partnership dated 22 March 1993 made between: i. the third respondent ('Ecroblack'), and ii. the second applicant ('Charlie Brown'), pursuant to which Charlotte Brown, through her company Charlie Brown, went into partnership with the first respondent ('Alan Green') through his company Ecroblack, for the retail sale of clothing manufactured by Image Clothing, ('the partnership agreement'). The consultancy agreement and the partnership agreement are hereafter referred to collectively as the 'employment agreements', except in so far as the employment agreements or any related conditions and collateral arrangements provide for the payment of money to the applicants. 2. In addition, or alternatively to order 1 above, and on the same basis, an order that the respondents reimburse and/or alternatively indemnify the applicants in respect of any and all payments made by the applicants or required to be made by the applicants pursuant to the employment agreements or any related conditions and collateral arrangements, including any legal costs of the respondents which the applicants have or will become liable to pay in connection with any other proceedings between the parties or any one or more of them arising out of their dispute. 3. An order that the respondents pay to the applicants such other moneys in connection with the employment agreements or any related conditions and collateral arrangements as may appear to the Court to be just in the circumstances, including interest. 4. An order that the respondents pay the applicants' costs of and incidental to these proceedings. 5. Such further or other relief and such further and other orders as the Court may deem just in the circumstances.

[9]

15 In relation to the first basis of estoppel, her Honour said: In this case the applicants initiated proceedings in the Supreme Court, in which the construction of the partnership agreement was raised and declarations and damages were sought, in relation to misrepresentations which were said to have given rise to rights under the TPA and the FTA. The applicants who were represented in those proceedings, decided not to pursue those latter remedies and acquiesced in the claims being dismissed, taking no steps to seek to discontinue that aspect of the proceedings, or to appeal the orders dismissing those claims. These actions have had the result that notwithstanding that the misrepresentation case was not heard in the Supreme Court, those issues are said by the respondents to be unavailable to be litigated in these proceedings. The applicants' argument that on the one hand the Supreme Court proceedings were still alive, but should be discontinued given the dissolution of the partnership, but on the other that the applicants' claim for damages for breach of the TPA and FTA had not been discontinued and hence precluded the estoppel argument, must be rejected having regard to the exhortation of the High Court and other Courts, that it is necessary in cases such as this to focus upon substance rather than form. Notwithstanding this, in one sense the estoppel argument raised here by the respondents is a rather technical one, with only a tenuous connection with the underlying principle that there should be an end to litigation. It was after all conceded by the respondents that whatever the outcome of the Notice of Motion was, some parts of the present application were available to be pressed before this Court. Nevertheless it is alleged by the applicants in this Court, that as a result of certain misrepresentations made by Mr Green, the partnership agreement prepared by Mr Green's solicitor did not reflect the discussions between the parties as to the terms of the agreement, rendering the agreement unfair in such a way as to require a declaration under section 275 avoiding or varying the agreement. The decision of McLelland CJ in Eq dealt with these same allegations of misrepresentation by dismissing the TPA and FTA claims. It must follow, applying the Anshun approach, that the consequence for the applicants must be that they are precluded from litigating those same matters in these proceedings. These circumstances are an example of a situation where the same facts, Mr Green's alleged misrepresentations, gave rise to several causes of action, including relevantly those under the TPA and FTA on the one hand and on the other, rights under section 275 of the Act in these proceedings. The applicants are not entitled to pursue both causes of action. The TPA and FTA claims having been dismissed by McLelland CJ in Eq, the applicants are not now entitled to pursue those same facts under section 275 of the Act. The applicant however argued that its claim under section 275 of the Act in relation to the partnership agreement, was advanced on a second basis, namely that irrespective of the alleged misrepresentation, the agreement, as construed by McLelland CJ in Eq, was harsh, unfair and unconscionable and that the performance of the agreement demonstrated this. Such a claim appears to be of a kind that could only be advanced under section 275 of the Act before this Court. (See The Rochester Communication Group Pty Limited & Ors v Rodney Stephen Adler & Ors , Federal Court of Australia, Beaumont J, Unreported, 3 May 1996). Are the applicants estopped from pursuing that claim, because of the dismissal of the misrepresentation case before McLelland CJ in Eq? This question raises great difficulty. After much reflection, I have concluded that the applicants are not precluded from pursuing this aspect of their case. Approaching the matter on the basis of a consideration of substance rather than form, I accept that the claim that the performance of the partnership deed, absent any allegations of misrepresentation, may be advanced. Such a case does not turn upon allegations of misrepresentation by Mr Green as to the terms of the agreement later entered by he and Ms Brown and thereafter by the two companies. Rather, it is the performance of the partnership agreement, in accordance with its terms which is raised for consideration. What falls to be determined in relation to this aspect of the claim is whether, in the words of Priestley JA in Rothmans Distribution Services Limited -v- Full Court of the Industrial Court of New South Wales (1994) 53 IR 157 at 160, 'a contract which could so operate was unfair' . It follows that this second aspect of the claim is not in conflict with the misrepresentation claims dismissed by McLelland CJ in Eq. The applicants here seek to assert a different right to that raised under the TPA and FTA, which must be supported on a different basis to that upon which the misrepresentation claims depended. This second aspect of the section 275 claim is not an example of a situation where the same facts gave rise to two causes of action between which the applicants are required to make an election. It is the outcome of the operation of the partnership deed which must be considered. In those circumstances, it is not appropriate to stay this second aspect of the applicants' claim. 16 Schmidt J made the following order: The applicants' claim for relief under section 275 of the Act, which arises out of misrepresentation alleged on the part of Mr Green as to the terms of the partnership agreement entered into between the second applicant and the third respondent, is permanently stayed. 17 The effect of her Honour's decision and order was:

[11]

20 In 1998, Ms Brown and Charlie Brown successfully sued Mr Geoffrey Frumar, a solicitor who had drafted the deed of partnership between Charlie Brown and Ecroblack. Schmidt J, summarised the proceedings against Mr Frumar and the outcome in her judgment of 2 December 1998: Studdert J held in the Supreme Court on 20 May 1998 in Charlie Brown Pty Limited & Anor v Frumar (Unreported), that Mr Frumar had not acted for the applicants when drafting the agreement; that Ms Brown had relied upon Mr Frumar as to the content of the agreement; that he ought reasonably to have known that she may have placed such reliance upon him (he had acted for the partners in relation to other transactions); that he should have advised her that he was not acting for her, but was acting for Mr Green and that she should therefore look for legal advice elsewhere; that the agreement had been drafted in accordance with instructions given by Mr Green; that the agreement had a number of deficiencies of which Mr Frumar was aware and which reflected Mr Green's instructions and another deficiency in drafting which had led McLelland J to dismiss the claim brought by the applicants in respect of the construction of the partnership agreement. Studdert J also found contributory negligence on the part of Ms Brown and apportioned fault on the basis of a 50% reduction of the damages he awarded, on account of that negligence. 21 The next development was a decision by Cohen J in the Equity Division of the Supreme Court on 10 June 1998 in which his Honour allowed Ms Brown and Charlie Brown to amend the statement of claim filed on 7 December 1994 in the proceedings against the appellants. Cohen J described the amendments as "really a total re-casting" of the claims earlier made. 22 Schmidt J explained the judgment of Cohen J in her judgment of 2 December 1998: Cohen J described the relief sought at p5-6: "The relief sought is set out in the proposed new paragraph 26. A declaration is sought that the second and third defendants have acted in breach of the representations and the varied partnership agreement or alternatively to the collateral contract constituted by the representations. The second declaration sought is to the effect that if the defendants had acted in accordance with the representations and promises then the assets of the partnership business would have included the distributorship agreement with the third defendant, a right to have merchandise supplied by the third defendant at a 10% discount and a right in the partnership business to trade under the name Howard Showers, notwithstanding the dissolution of the partnership." The defendants argued that the plaintiffs were estopped from making the claim, having regard to the principles set out in Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 .

[14]

At p13-14, Cohen J concluded that the Anshun principle did not apply to the application before him, for three reasons: "... First, the allegations of fact or representation in the proposed amendment, although similar in content, are not the same as those in the present statement of claim. In order to support the claims relating to the Trade Practices and Fair Trading Acts , it was necessary to show that the representations as made were deceptive and misleading. The plaintiffs now seek to say that the representations were accepted and formed the basis for a collateral agreement. It is an alleged breach of the representations upon which the plaintiffs now wish to rely, not a claim that those representations were misleading. Secondly, the separate issue before McLelland CJ in Eq in June 1995 was whether the facts then alleged could support part of the relief claimed. He did not have to adjudicate on the issue. The relief sought, and dismissed after its withdrawal, was not inconsistent with the relief now sought. Damages were and still are claimed, but not because of breaches of the two statutes. The declaratory relief relating to the partnership is not to establish its ownership of particular assets but makes a claim that the breaches by the defendants deprived the partnership of those assets. There seems to be no inconsistency between the relief now sought and the dismissal of the relief previously sought. Thirdly, the plaintiffs indicated at the time of withdrawing some of their earlier claims, that they would be seeking amendments. Those which were foreshadowed were different to the present claim, that they were to be based on similar facts to those now sought to be alleged. In the circumstances in which the earlier dismissal occurred, I do not consider that it could be said to be an abuse of process now to permit the amendments, even though they are of a different nature. It seems to me that these matters amount to special circumstances which would permit amendments now to be made." Cohen J was aware of the proceedings before this Court. They were raised as a reason for refusing the application to amend the statement of claim before him. His Honour observed at p14 - 15: "There have been other submissions as to why the application to file a further amended statement of claim should be refused. It was said that as a consequence of the dismissal of the claims for relief on 3 July 1995, decisions have been made in the Industrial Relations Court (sic) in reliance on those orders. I was informed that there are further matters to be dealt with by that Court. I do not see how the allowing of an amendment arising out of contract which is collateral to the partnership agreement could prejudice the position in the Industrial Relations Court (sic). It is not said that the claimed collateral contract became part of the partnership agreement as had been previously claimed. What was stayed in that Court were claims which in effect were the same as the statutory claims which had been made and then abandoned in these proceedings. The allowing of an amendment would not in my view cause an embarrassment in the conduct of the Industrial proceedings." Cohen J gave leave to amend the statement of claim, but stayed the proceedings until the plaintiffs had paid the defendant's outstanding costs, assessed at some $16,000. 23 In her judgment of 2 December 1998 Schmidt J dealt with an application by Ms Brown and Charlie Brown to amend the summons initiating the proceedings before her. The application for leave to amend, it was said, arose out of the decisions by Studdert J and Cohen J in the Supreme Court.

[15]

24 In her consideration of the application for leave to amend, her Honour said: This application must be considered in the light of the actual interlocutory order made on 6 August, which as earlier noted, was that: "The applicants' claim for relief under section 275 of the Act, which arises out of misrepresentation alleged on the part of Mr Green as to the terms of the partnership agreement entered into between the second applicant and the third respondent, is permanently stayed." That order was made in particular circumstances, namely that the relief claimed in these proceedings was supported by misrepresentations alleged to have been made by Mr Green to Ms Brown, in similar terms to those asserted in the Supreme Court proceedings, where they were said to have given rise to rights under the Trade Practices Act and the Fair Trading Act . McLelland J (sic) dismissed those claims, with the result that, in accordance with the Anshun approach, even though the misrepresentation claims were never heard or determined in the Supreme Court, the applicants were not entitled to pursue the same misrepresentation claims in these proceedings. The Supreme Court proceedings have now been amended, with leave of that Court. There has been no appeal from the decision of Cohen J. These proceedings do not involve an appeal from his Honour's decision, which must be regarded by this Court as having been properly decided. There were three particular matters upon which Cohen J's decision turned. The first went to the differences in the allegations of fact or representation sought to be advanced in the amended statement of claim and the fact that it was breach of representations, rather than misrepresentations, which the plaintiffs wished to pursue. The second matter went to the relief sought and then dismissed with the withdrawal of the claims before McLelland J, which his Honour was therefore never called upon to determine. Cohen J saw no inconsistency between the relief dismissed by McLelland J and that which the plaintiffs later sought to pursue before him. The third matter was the foreshadowed amendment of the claim before McLelland J, at the time of the withdrawal of the Trade Practices Act and the Fair Trading Act claims. Cohen J took the view that in these circumstances there was no abuse of process in permitting the amendments sought, which in his Honour's view amounted to special circumstances. It is in that context that the present application must be considered. There is now on foot in the Supreme Court a claim based on alleged representations and promises which are said to have given rise to a collateral contract. Those claims have not been determined. They do not depend upon claims of misrepresentation. It follows that the Anshun principle does not apply to a claim sought to be advanced in these proceedings on a similar footing. Furthermore, it seems to me that there is ample basis in all of the circumstances of this case, for the view to be properly taken that special circumstances now exist which make it appropriate to exercise the discretion which the Court has not to preclude or stay the amendment now sought. I take that view not only because of the circumstances in which McLelland J originally dismissed the Trade Practices Act and the Fair Trading Act claims and the leave given by Cohen J to amend the statement of claim in those proceedings, but also in the context of the decision given by Studdert J in Frumar. 25 On 7 June 2000 Schmidt J gave her substantive judgment in the proceedings. Her Honour found that both the consultancy agreement between Ms Brown and Image and the partnership agreement between Charlie Brown and Ecroblack, whether they are regarded as two separate contracts or an overall arrangement, were unfair within the meaning of s 275 of the 1991 Act. At par [75] of her judgment her Honour said: That conclusion flows both from express terms of the two contracts and from the conduct thereunder of Mr Green and the two corporate respondents, Image and Ecroblack, particularly when acting through Mr Green and Ms Drewe. That conduct threw into stark relief the unfairness of the contracts and arrangement in question, so far as the applicants were concerned. That conduct was not such as to pay any proper, or indeed, any regard to the rights and interests under the two contracts of the applicants, but rather was designed to unfairly advantage the respondents, at the applicants' expense. 26 In her judgment Schmidt J indicated the nature of the orders she intended to make and directed the parties to file and serve orders to reflect her judgment. Her Honour then gave a supplementary decision on 1 September 2000, deciding several issues relating to the form of the orders that had not been agreed between the parties and also making an order as to interest. The final orders were made on 8 September 2000. 27 Her Honour's orders included the variation of the consultancy agreement to provide for 12 months' notice, and the variation of the partnership agreement in several respects. Her Honour also made money orders in relation to the varied partnership agreement, including payments to the respondents for their loss of interest in, and loss of income under, the partnership agreement. Her Honour also ordered that the appellants pay the respondents' legal costs, and indemnify them against costs claimed against them, in relation to Supreme Court proceedings between the parties, and between the respondents and Mr Frumar (Mr Green's solicitor, who drafted the partnership agreement).

[36]

45 The propositions for which Anshun is authority are contained in the majority judgment of Gibbs CJ, Mason and Aickin JJ. The majority made it clear that this was not a case of res judicata, as the indemnity cause of action had not been litigated in the first action. For similar reasons, it was not a case of issue estoppel (at 597-598). The critical issue was whether the case was within the "extended principle" expressed by Sir James Wigram VC in Henderson v Henderson (1843) 3 Hare 100; 67 ER 313 at 319: "where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time." 46 Their Honours considered that, in applying the extended principle, the proper approach was that (at 602-603): In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.

[38]

50 In Bryant the Court (at 297) approved and adopted the statement of principle set out by Priestley JA (with Meagher and Hope JA agreeing) in Rahme: In Rahme v Commonwealth Bank of Australia (20 December 1991, not reported) the New South Wales Court of Appeal had to consider the application of Anshun in a case that was the converse of the present. The appellants, Mr and Mrs Rahme, had previously brought an action in this Court claiming damages in relation to arrangements for a foreign currency loan. They relied on an assortment of causes of action including negligent advice, breach of a contractual duty of care, contravention of the Trade Practices Act 1974, fraud and breach of fiduciary duty. The action failed. They then instituted a second action, in the Supreme Court of New South Wales, in which they claimed relief under the Contracts Review Act 1980 (NSW). The bank pleaded the Anshun principle. This plea was determined, favourably to the bank, as a preliminary point. In dismissing the appeal, Priestley JA, with whom Meagher JA and Hope A-JA agreed, analysed Anshun to be authority for the following propositions: "1, that Wigram VC's extended principle as stated in Henderson is accepted as good law by the High Court; 2, that that principle applies, inter alia, to category (3) cases, that is to a proceeding in which a party is asserting a cause of action which could have been raised, but was not, in a previous proceeding in which the same party was asserting a different cause of action based on substantially the same facts against the same party as the second proceeding is being brought; and 3, that the extended principle of Henderson will be applied to the second proceeding when it was unreasonable for the party asserting the cause of action in that second proceeding to refrain from raising it in the earlier proceeding against the same opponent party." Priestley JA said that the relevant question was: "whether the claim sought to be raised in the Supreme Court under the Contracts Review Act (a) could have been raised in the Federal Court proceedings and (b) raised matters so clearly part of the subject matter of the Federal Court proceedings that it was unreasonable on the part of the appellants not to have raised that claim in those proceedings." He said that question (b) should not be answered by reference to any verbal formula. He accepted a submission that the Court should ask itself "was it unreasonable of the appellants to have refrained from raising the claims now made in the proceedings before the Federal Court?" Answering this question in the affirmative, it followed that the appeal failed. It seems to us that the approach taken in Rahme should be followed in this Court. It is not inconsistent with anything stated in Anshun ; indeed it is consonant with the High Court's placing emphasis on looking at the substance of the issue sought to be raised in the later case, rather than on its form. Whether the claim sought to be raised in the Supreme Court under the Contracts Review Act (a) could have been raised in the Federal Court proceedings and (b) raised matters so clearly part of the subject matter of the Federal Court proceedings that it was unreasonable on the part of the appellants not to have raised that claim in those proceedings. 51 The decision in Anshun has been described as an application of a court's inherent power to prevent an abuse of process, which supplements the less flexible doctrines of res judicata and issue estoppel. As Handley JA somewhat colourfully put it, writing extrajudicially (Handley, (1997) "Anshun Today" 71 Australian Law Journal 934 at 934): In the language of the stud book, one might say that Anshun was by abuse of process out of Henderson v Henderson . The extended doctrine of which Anshun is only part, supplements the doctrines of merger, cause of action estoppel and issue estoppel. 52 Madgwick J in Stuart v Sanderson (2000) 175 ALR 681 sets out a comprehensive analysis and discussion of the Anshun case. (See especially at 686-689). At 686 his Honour said: The [ Anshun ] principle is thus not founded only upon the need to restrain costs between parties in dispute, although that is one of its purposes ( Bryant at 298, and Trawl Industries v Effem Foods (1992) 36 FCR 406 at 423 per Gummow J). It is also founded upon the need to avoid 'conflicting' judgments ( Anshun at 603 - 604), to ensure finality of litigation ( Anshun at 609, per Brennan, and Bryant at 299), to prevent parties from gaining an advantage in the use of the Court's time (Handley at 938) and, in the more global expression of Murphy J "to preserve the orderly administration of justice" ( Anshun at 605); that expression might include, for example, the maintenance of the appearance of good order, so as to sustain public confidence in curial disposition of disputes. 53 There are a number of suggestions in the authorities and secondary sources that the Anshun principle, at least to the extent that it adopts the "extended principle" in Henderson, should be applied with caution. In Cross on Evidence, Australian Edition, it is noted that the principle in Henderson has been applied in Australia "with great caution" [5170]. In Rogers v The Queen (1994) 181 CLR 251, Deane and Gaudron JJ suggested (at 275) that the "extended principle" in Henderson, if it was a principle at all, was to be "treated with caution". In Bryant at 296, citing Yat Tung Investments Co Ltd v Dao Heng Bank Ltd [1975] AC 581, at 590 the Court said that the Anshun principle should be applied only after a "scrupulous examination of all the circumstances". See also Ling v Commonwealth (1996) 68 FCR 180 at 182.

[39]

54 The operation of the "special circumstances" exception to the Anshun principle was considered in detail by Madgwick J in Sanderson (at 687-690). His Honour concluded that the application of Anshun was discretionary, and that this discretion was to be exercised by considering whether it did not apply because of special circumstances. His Honour, therefore, stated the Anshun principle as requiring that: (at 689, par 31) where a party has behaved unreasonably in not raising a matter in the earlier proceedings, that party will in general not be permitted to later litigate it, unless there are special circumstances. 55 His Honour further stated that: (at 689, par [32]) There appear logically to be two broad considerations that might be relevant to the determination of whether special circumstances exist. First, circumstances may in some way account for the unreasonable conduct involved in not having pressed the matter in the earlier proceeding, so as to excuse it... Second, circumstances may mean that application of the Anshun rule would work such a degree of hardship or of injustice on a party as to justify the displacement of the prima facie rule. 56 The nature of the special circumstances exception was also discussed in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287, especially at 298-299 where it was said that the exception: comprehend[s] situations where, for broad discretionary considerations related to notions of justice, [the principle] should not be applied with full rigour. Orders of Schmidt J - 6 August 1996, 2 December 1998 57 In her decision of 2 December 1998 Schmidt J ordered that "Leave is given to file and serve the Further Amended Summons in these proceedings and the order of 6 August is varied in so far as is necessary to give effect to that leave." The order of 6 August 1996 permanently stayed that part of the respondents' claim for relief that arose out of the misrepresentation alleged on the part of Mr Green as to the terms of the partnership agreement. The question arises as to the effect of her Honour's order of 2 December 1998 on her earlier order of 6 August 1996.

[59]

72 There is a fundamental difference between cause of action and issue estoppel on the one hand and Anshun estoppel on the other. As Clarke JA notes in Macquarie Bank v National Mutual Life Association of Australasia Ltd & Larcombe (1996) 40 NSWLR 543 (Clarke JA refers to 'estoppel by record' which may be taken as including both cause of action and issue estoppel) at 558: There is, of course, a similarity between estoppel by record and the Anshun principle but there are also fundamental differences. In the former, proof that a party is seeking further to litigate a cause of action which has previously been taken to judgment operates as a complete bar to the later action. In the latter, the estoppel operates only where the new litigation involves a point or points which properly belonged to the first proceeding ( Henderson ) or unreasonably was or were not included in it ( Anshun ), and the appropriate order is a stay of proceedings. However, even where it is found that the point was unreasonably omitted from the first case, the court retains a discretion not to stay the second proceedings if special circumstances exist. 73 In these proceedings, consistent with the submissions of the appellants, we have confined ourselves to a consideration of whether Anshun estoppel applies. In doing so, we are cognisant of the warning by Deane and Gaudron JJ in Rogers v The Queen that the principle enunciated in Henderson v Henderson, if it is a principle at all, is to be treated with caution. Similarly, in Ling v Commonwealth, Wilcox J observed at 182: The principle applied by the High Court of Australia in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 is designed to minimise the burden of litigation. It enables courts to ensure that parties put their whole case forward at one time, thereby eliminating duplication of effort and expense and reducing the opportunity for a party to harass a weaker opponent with repeated suits. However, these benefits come at a price. The result of a court applying the principle is to shut out a claim or defence that a party wishes to pursue, without determination of its intrinsic merit, on the ground that it ought to have been raised in earlier litigation. As the Judicial Committee of the Privy Council pointed out in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd [1975] AC 581 at 590, this is a serious step, a power not to be exercised except after a scrupulous examination of all of the circumstances". If the Anshun principle is too readily applied, there is a possibility of serious injustices.

[67]

81 The respondents subsequently sought to amend the dismissal order made by McLelland CJ in Eq on 3 July 1995 to one of discontinuance in order to overcome the estoppel defence upheld in part by Schmidt J. In his judgment of 25 August 1997 McLelland CJ in Eq held that the application to amend had been made far too late in the proceedings. It is to be noted, however, in dismissing the claims McLelland CJ in Eq did so "without prejudice to any future application by the plaintiffs [the respondents on appeal] for leave to further amend the statement of claim". During the proceedings his Honour had been informed of: …the possible amendment of the statement of claim in proceedings 4074/94, for the purpose of introducing a claim to the effect, as I understand it, that there was an agreement between the two partners on the one hand, and the third defendant in those proceedings, Image Clothing Pty Ltd, on the other hand, which conferred contractual rights on the partnership in relation to the distribution of "Howard Showers" brand women's clothing, manufactured by the third defendant; such contractual rights, it is said, being such as to survive dissolution of the partnership, and to constitute an asset of the partnership business which is available for realisation in the course of the winding up of the partnership. As I understand it, it is also contemplated that even if there is no contractual right to that effect subsisting in the partnership, then alternatively, equivalent rights should be held to be established by some form of estoppel, or alternatively again, the Court should by reason of orders which may be made under the Fair Trading Act, or the Trade Practices Act, in effect create equivalent rights. 82 This aspect of the judgment of McLelland CJ in Eq was relied upon by Cohen J as one of the three reasons for granting leave to amend the respondents' statement of claim. In his judgment of 10 June 1998 Cohen J said: Thirdly, the plaintiffs indicated at the time of withdrawing some of their earlier claims, that they would be seeking amendments. Those which were foreshadowed were different to the present claim, that they were to be based on similar facts to those now sought to be alleged. In the circumstances in which the earlier dismissal occurred, I do not consider it could be said to be an abuse of process now to permit the amendments, even though they are of a different nature.

[106]

108 The following day Ms Brown apologised to Mr Green for her conduct, sought to re-establish her relationship with him (which Schmidt J had said was in Ms Brown's mind "a father/daughter relationship"), and proposed a part-time consultancy agreement. Schmidt J then observed: 121 Mr Green rejected this proposal and offered a consultancy on terms which required Ms Brown to perform all of her old work, and also introduced several new terms, including one which was to be of significant advantage to Mr Green, namely a probationary period. The letter provided: 'The period of the consultancy is 6 calender (sic) months - commencing 23/6/94. Between 23/6/94 and 23/7/94 an evaluating period will occur. On the 23/7/94 after the evaluating period has been deemed successful both parties will sign the contract. Charlie will receive all salaries, that were paid to her when she as employed, as a monthly consultancy, paid in arears (sic).' 109 On 25 July 1994 Ms Brown was handed a letter, prepared by Mr Green's solicitor, Mr Frumar, which informed her of her dismissal but gave no reasons. Schmidt J rejected the evidence of Mr Green and Maryanne Drewe, (Chief Executive Officer of Image at the time) that Ms Brown had not properly performed her work during the period of the consultancy agreement, preferring the evidence of other witnesses. Her Honour found that Ms Brown's dismissal arose out of comments allegedly made by another employee, Ms Ogilvie, to Mr Green and Ms Drewe, who apparently questioned Ms Brown's work and loyalty to Image. Ms Ogilvie did not give evidence, and Mr Green conceded in cross-examination that she did not provide any details of her allegations other than her personal perceptions. Mr Green also conceded that he had no basis for his own fears that Ms Brown was "trading secrets" with Mr Danny Avidan, Company Director and Chief Executive Officer of Discovery Clothing Company Pty Limited ('Discovery') with whom Ms Brown had formed a romantic attachment and whom she later married.

[120]

129 The applicants submitted that even if Ms Brown did not breach her fiduciary duty, at the very least her actions constituted matters that entitled Image to lose its trust and confidence in her as an employee: Day v Lumley Life Ltd (1999) 90 IR 70. In that case Hungerford J said at 71-72: The employment relationship, I have to say, is a serious relationship with important incidents for both parties to it. It is a consensual relationship based on contract and with respective rights and obligations. It should not, I think, operate, or to be so seen, in practice in a way which permits one party, here the employer, to act in a one-sided manner contrary to the legitimate expectations and understandings of the other party, here the employee, and particularly where such action damages or detrimentally affects the career interests of the employee. Employees have a corresponding duty to act with fidelity and good faith. The position was stated by Kilner Brown J. presiding in Robinson v. Crompton Parkinson Ltd. ([1978] I.R.L.R. 61 at 62) in this way: It seems to us, although there is no direct authority to which we have been referred, that the law is perfectly plain and needs to be re-stated so that there shall be no opportunity for confusion in the future. In a contract of employment, and in conditions of employment, there has to be mutual trust and confidence between master and servant. Although most of the reported cases deal with the master seeking remedy against a servant or former servant for acting in breach of confidence or in breach of trust, that action can only be upon the basis that trust and confidence is mutual. Consequently where a man says of his employer, 'I claim that you have broken your contract because you have clearly shown you have no confidence in me, and you have behaved in a way which is contrary to that mutual trust which ought to exist between master and servant,' he is entitled in those circumstances, it seems to us, to say that there is conduct which amounts to a repudiation of the contract. In Bliss v. South East Thames Regional Health Authority ([1987] I.C.R. 700) the Court of Appeal (U.K.) commented as to the implied term of mutual confidence and trust in an employment contract as follows (at 714): It is common ground on the pleadings that it was an implied term of the plaintiff's contract that the authority would not without reasonable cause conduct itself in a manner likely to damage or destroy the relationship of confidence and trust between the parties as employer and employee. There is ample authority in employment cases to warrant the implication of such a term. The relationship, as I have said, between the employer and an employee is of a serious nature. Its importance in presently relevant respects may be illustrated by what the Employment Appeal Tribunal ( Browne-Wilkinson J. presiding) said in Woods v. W. M. Car Services (Peterborough) Ltd. ([1981] I.C.R. 666 at 670-672): In our view it is clearly established that there is implied in a contract of employment a term that the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee: Courtaulds Northern Textiles Ltd. v. Andrew [1979] I.R.L.R. 84. To constitute a breach of this implied term it is not necessary to show that the employer intended any repudiation of the contract: the tribunal's function is to look at the employer's conduct as a whole and determine whether it is such that its effect, judged reasonably and sensibly, is such that the employee cannot be expected to put up with it: see British Aircraft Corporation Ltd. v. Austin [1978] I.R.L.R. 332 and Post Office v. Roberts [1980] I.R.L.R. 347. The conduct of the parties has to be looked at as a whole and its cumulative impact assessed: Post Office v. Roberts. We regard this implied term as one of great importance in good industrial relations. … … … In our view, an employer who persistently attempts to vary an employee's conditions of service (whether contractual or not) with a view to getting rid of the employee or varying the employee's terms of service does act in a manner calculated or likely to destroy the relationship of confidence and trust between employer and employee. Such an employer has therefore breached the implied term. Any breach of that implied term is a fundamental breach amounting to a repudiation since it necessarily goes to the root of the contract: see Courtaulds Northern Textiles Ltd. v. Andrew [1979] I.R.L.R. 84. 130 We do not consider that Ms Brown's conduct during June/July 1994 was "calculated or likely to destroy the relationship of confidence and trust" between herself and her employer or that her conduct amounted to a repudiation of her contract with Image. Such a submission is unsustainable, particularly given that there was no evidence of Ms Brown 'trading secrets' with Mr Avidan, that Image suffered no detriment, that Discovery was not a competitor of Image at the relevant time, and that Ms Brown had fulfilled her obligations to Image in terms of her work obligations when she began developing her own label as a contingency against the prospect of termination at the end of the six months' consultancy agreement.

[132]

It follows that in making an appropriate monetary order under s 106(5) it is proper to have regard to the common law principles relating to mitigation but recognising that in particular cases it will be inappropriate to apply mitigation. Ordinarily, where an employee has been successful in avoiding his or her loss, or has failed to take reasonable steps to avoid loss in the period following dismissal, the Court, in determining what is just in the circumstances of the case, should give consideration to whether, and to what extent, any money amount in respect of notice of termination that is contemplated to be the subject of an order under s 106(5), should be reduced by monies earned, or imputedly earned, in the relevant post-termination period. We emphasise that the application of the principle of mitigation in cases brought under s 106 represents one aspect of the consideration of what orders are "just in the circumstances of the case". See also the detailed consideration earlier in Westfield , at pars [132] to [146], as to, inter alia , avoided loss. 148 In her judgment at par [156], Schmidt J addressed the question of mitigation as follows: 156 … As to mitigation, applying the approach discussed in Cory to the circumstances of this case, I take the view that it is not appropriate to have regard to Ms Brown's earnings in her later employment by Discovery in calculating monetary orders. If such an approach were to be adopted it would, in my view, also be necessary to give consideration to the sums expended by Ms Brown in seeking to establish her own business. Regard to one aspect without the other would not be to approach the concept of mitigation in circumstances such as these on either a fair or proper basis. 149 After the cessation of Ms Brown's employment with Image she commenced a business venture on her own account. This business venture failed, and resulted in a loss of considerable funds put into the business by Ms Brown. Ms Brown subsequently commenced employment with Discovery in October 1994 and to that extent we consider that Ms Brown mitigated her loss. We do not consider that the circumstances of this case provided a basis to exercise the relevant discretion so as to result in a departure from the usual approach to mitigation for avoided loss. Any monies received by Ms Brown in respect of the 12 months' notice period should have been offset by income she derived from her employment with Discovery.

[136]

153 Schmidt J dealt with the question of the partnership agreement at pars [157] to [196] of her judgment. At pars [181] and [182] her Honour said: 181 …In cross examination, Ms Brown agreed that she got a fair price for her share of the business at that point. While the respondents relied upon this view, it did not, in my view, detract at all from the strength of the case which the applicants here advanced as to the partnership deed or the unfairness of the respondents' conduct in relation to the partnership, its establishment, operation and dissolution. Ms Brown's satisfaction with the Receiver's conduct who, for instance, as part of his valuation, reinstated into his calculations the 10% discount which had been removed, could be well understood. This cannot, however, be relied upon by the respondents as having fairly redressed the wrongs which they had earlier done the applicants. Nor did it provide a complete answer to the claims advanced here, which were not concerned with the fairness of the Receiver's conduct, but that of the partnership agreement and the conduct of the respondents thereunder. 182 These matters inevitably lead to the conclusion that the applicants have demonstrated the unfairness of the partnership agreement. That agreement was plainly a one-sided document, designed by Mr Green to advantage him and to disadvantage Ms Brown and to ensure that she did not obtain independent advice as to her position. That Mr Green was able to engineer this result obviously flowed from his understanding of Ms Brown's belief that they had a father/daughter relationship and that he would treat her accordingly. That their respective bargaining positions were not equal was plain. The agreement not only permitted Mr Green to conduct himself in a manner which ignored Ms Brown and Charlie Brown's proper entitlements and the basis under which the agreement had been entered, but was designed by Mr Green in order to enable him to achieve that end. It follows that this aspect of the parties' arrangement must also be found to be relevantly unfair, as that term was understood under s275 of the Act. 154 In determining the value of the partnership business for the purpose of making money orders under s 275(3) of the 1991 Act Schmidt J said: 185 I take the view that the calculation of the monetary orders should be approached on the basis that an assessment be made of the value of the partnership business at the time when it came to an end and that there should be some component as to the income sought. I do not, however, accept that it would be appropriate to make orders in respect of an income stream on a basis that the business would have continued to October 1999. … 194 Mr Elliott's valuation proceeded, in part, on the basis of an assumption that the partnership business would have continued with Ms Brown's involvement, selling clothes she had designed, without her designing a Charlie Brown label while working for Discovery. On the evidence in this case, I have reached the conclusion that it would not be just to assume that this relationship would have continued indefinitely after the events of 1994. In that context, I have concluded that it would be just to proceed on the basis that the relationship between Image and the partnership would have come to an end after a proper period of notice. I assess such notice on a basis similar to that which I concluded was fair in relation to the notice of termination of employment which should have been given by Image to Ms Brown. It follows that 12 months' income should flow under the monetary orders to be made. 195 The notice of dissolution was given by Ecroblack on 27 September 1994. I take the view that the monetary order should therefore encompass an income stream, calculated on the basis adopted by Mr Elliott, to the end of September 1995, less any profits paid to Ms Brown prior to that date. I have also taken into account as relevant to this approach that during some of this period at least, Howard Showers' clothes available for sale were in fact designed by Ms Brown before the termination of her employment. 155 In our opinion, there is no basis for interfering with the exercise of her Honour's discretion in relation to the partnership agreement and her valuation of the partnership business. Her Honour was clearly correct in identifying the unfairness perpetrated by the appellants in their conduct aimed at pressuring Ms Brown to leave the partnership following her dismissal from employment in July 1994 and in finding that the partnership agreement was unfair and designed by Mr Green to be so.

Parties

Applicant/Plaintiff:

Green

Respondent/Defendant:

Brown

Legislation Cited (1)

Contracts Review Act 1980(NSW)

Cases Cited (41)

SECOND RESPONDENT Charlie Brown Pty Limited FILE NUMBER: IRC 4613 of 2000 CORAM: Wright J President; Walton J Vice-President; Boland J CATCHWORDS : Appeal - Application for leave to appeal - Cross-appeal - Unfair contract - Application of Anshun principle - Orders that affect orders made by the Supreme Court - Termination of employment - Disclosure of confidential information - Whether breach of fiduciary duty - Mitigation - Value of partnership business - Slip rule - Leave to appeal granted - Appeal upheld in part Contracts Review Act 1980 Fair Trading Act 1987 Industrial Court (Interim) Rules 1992 Industrial Relations Act 1991 s 275 LEGISLATION CITED : Industrial Relations Act 1996 s 106 Industrial Relations Commission Rules 1996 Jurisdiction of Courts (Cross-vesting) Act 1987 Supreme Court Rules 1970 Trade Practices Act 1974 Adams v Chas S Watson Pty Ltd (1938) 60 CLR 545 Abboud v State of New South Wales (Department of School Education) (No 2) (2000) 99 IR 299 Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd (1967) VR 37 Baker v National Distribution Services Limited (1993) 50 IR 254 Bliss v South East Thames Regional Health Authority [1987] ICR 700 British Aircraft Corporation Ltd v Austin [1978] IRLR 332 Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287, (1995) 130 ALR 129, (1995) ATPR 41-421 Bruning v Kingmill (Australia) Pty Limited (1998) 85 IR 78 Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502 Charlie Brown Pty Limited & Anor v Frumar (Unreported, Studdert J, NSWSC, 20 May 1998) Charlie Brown Pty Limited & Anor v Green & Ors (Unreported, McLelland CJ in Eq, NSWSC, 26 June 1995) Coco v A N Clark (Engineers) Ltd (1969) RPC 41 Concut Pty Limited v Worrell (2000) 176 ALR 693 Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84 Crowley v Glissan (1905) 2 CLR 402 Day v Lumley Life Ltd (1999) 90 IR 70 DJL v Central Authority (2000) 201 CLR 226 Ecroblack Pty Limited v Charlie Brown Pty Limited (Unreported, McLelland CJ in Eq, NSWSC, 26 June 1995) Gerlach v Clifton Bricks Pty Ltd (2002) 76 ALJR 828 GIO Australia Limited v O'Donnell (1996) 70 IR 1 Heath Group Australasia Pty Ltd v Hanning [1999] NSWSC 719 Henderson v Henderson (1843) 3 Hare 100, [1843-60] AII ER Rep 378, (1843) 67 ER 313 Hibbert v Libidineuse (1990) 37 IR 150 House v The King (1936) 55 CLR 499 CASES CITED : Knowles v Anglican Church Property Trust (No 2) (1999) 95 IR 380 Ling v Commonwealth (1996) 68 FCR 180, 139 ALR 159 LEP International Pty Limited v Caine (2000) 97 IR 35 Lucy v The Commonwealth (1923) 33 CLR 229 Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd & Larcombe (1996) 40 NSWLR 543 Mace v Murray (1955) 92 CLR 370 McGurk v ECC Lighting Limited (1996) 82 IR 102 Nolan v Clifford (1904) 1 CLR 429, Port of Melbourne Authority v Anshun Pty Limited (1981) 147 CLR 589 Post Office v Roberts [1980] IRLR 347 Rahme v Commonwealth Bank of Australia (NSWCA, unreported, 20 December 1991) Robinson v Crompton Parkinson Ltd [1978] IRLR 61 Rogers v The Queen (1994) 181 CLR 251 Rothmans Distribution Services Limited v Full Court of the Industrial Court of New South Wales (1994) 53 IR 157 Solicitors (State) Award (No 2) Re (1996) 72 IR 213 State Bank of New South Wales Ltd v Alexander Stenhouse Ltd (1997) Aust Torts Reports 81-423 Stuart v Sanderson (2000) 175 ALR 681 Stone Microsystems (Aust) Pty Limited v Kwong (1997) 42 NSWLR 160 Storey & Keers v Johnstone (1987) 9 NSWLR 446 Texas Co (Australasia) Ltd v Federal Commissioner of Taxation (1940) 63 CLR 382 Rochester Communication Group Pty Limited & Ors v Adler (1996) 65 FCR 572, (1996) 143 ALR 529, (1996) 65 IR 464 Trawl Industries v Effem Foods of Australia Pty Ltd (in liq) Pty Ltd (1992) 36 FCR 406, (1992) 108 ALR 335 Vision Publishing Pty Ltd v PK Lane Holdings Pty Ltd (1998) 84 IR 277 Westfield Holdings v Adams [2001] NSWIRComm 293 Woods v W M Car Services (Peterborough) Ltd [1981] ICR 666 Yat Tung Investments Co Ltd v Dao Heng Bank Ltd [1975] AC 581 HEARING DATES: 04/10/2001; 04/11/2001 DATE OF JUDGMENT: 08/02/2002

(1938) 60 CLR 545

(2000) 99 IR 299

(1993) 50 IR 254

(1995) 57 FCR 287

(1995) 130 ALR 129

(1998) 85 IR 78

(1988) 164 CLR 502

(2000) 176 ALR 693

(1905) 2 CLR 402

(1999) 90 IR 70

(2000) 201 CLR 226

(2002) 76 ALJR 828

(1996) 70 IR 1

(1990) 37 IR 150

(1936) 55 CLR 499

(1999) 95 IR 380

(1996) 68 FCR 180

(2000) 97 IR 35

(1923) 33 CLR 229

(1996) 40 NSWLR 543

(1955) 92 CLR 370

(1996) 82 IR 102

(1904) 1 CLR 429

(1981) 147 CLR 589

(1994) 181 CLR 251

(1994) 53 IR 157

(1996) 72 IR 213

(2000) 175 ALR 681

(1997) 42 NSWLR 160

(1987) 9 NSWLR 446

(1940) 63 CLR 382

(1996) 65 FCR 572

(1996) 143 ALR 529

(1996) 65 IR 464

(1992) 36 FCR 406

(1992) 108 ALR 335

(1998) 84 IR 277

(1982) 151 CLR 590

[2001] NSWIRComm 293

[1999] NSWSC 719

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